The price of Brent crude ended the week at $83.55 after closing the previous week at $78.56. With the recent price increase Brent crude has broken through its 200-day moving average and is at the highest level since early November 2023. The price of WTI ended the week at $78.01 after closing the previous week at $73.71. The price of DME Oman crude ended the week at $83.10 after closing the previous week at $78.11.

WAOP 1-29-24
(Source: Stratas Advisors)

The increases in oil prices were supported by the following:

  • Positive economic data associated with the U.S. economy. The U.S. Commerce Department reported that the U.S. economy grew at 3.3% (annualized basis) during Q4 of 2023 after growing by 4.9% in Q3. With the strong growth in the second half of the year, the U.S. economy grew at 2.5%, which compares to 1.9% in 2022. The recent data release was also favorable with respect to inflation. The personal consumption expenditure (PCE) price index increased by 0.2% in December and 2.6% on an annual basis. The PCE price index excluding food and energy increased by 2.9% on an annual basis, which is the smallest increase since March 2021. At the same time, consumer spending increased by 0.7% and incomes increased by 0.3%.
  • Favorable EIA report. The latest EIA (Energy Information Administration) report indicated that U.S. oil production decreased to 12.3 MMbbl/d from 13.3 MMbbl/d of the previous week. The EIA report also indicated that U.S. crude inventories decreased by 9.23 MMbbl. Crude inventories are lower than the level of the previous year (421 MMbbl vs. 449 MMbbl) and in comparison to 2019 (421 MMbbl vs. 445 MMbbl). The inventory level at Cushing decreased to 30.10 MMbbl, which compares to 35.69 MMbbl of the previous year.
  • The geopolitical situation, which further deteriorated over the weekend with the U.S. suffering the loss of three soldiers by a drone attack on U.S. troops stationed in northeast Jordan near the Syrian border. Last week, we expressed the view that oil prices will bounce upwards with negative geopolitical news, but the price increase will quickly fade once the market sees that oil is still flowing. So far, oil has continued to flow, although the disruption in the Red Sea has resulted in the shipping rates for clean tankers approaching $100,000/ day with the need for oil tankers to travel further. The elevated shipping rates have also made it difficult to move oil from the U.S. Gulf Coast to Asia. At the end of last week, it was reported by Reuters that China has asked Iran to help in curtailing attacks on ships in the Red Sea that are being carried out by the Houthis and prevent the harming of business relations between China and Iran. The Houthis have previously stated that Chinese and Russian ships will not be affected by attacks in the Red Sea. It has been reported, however, that the Houthis attacked a British tanker that was hauling oil products that originated in Russia.

Looking forward, we are expecting that increase in oil prices will be moderated, in part, because it is likely that the U.S. will be cautious in terms of the scale of the response to the recent attack on U.S. troops. Additionally, while the U.S. economy is surprising to the upside, China’s economy continues to struggle.

For a complete forecast of refined products and prices, please refer to our Short-term Outlook.

About the Author: John E. Paise, president of Stratas Advisors, is responsible for managing the research and consulting business worldwide. Prior to joining Stratas Advisors, Paisie was a partner with PFC Energy, a strategic consultancy based in Washington, D.C., where he led a global practice focused on helping clients (including IOCs, NOC, independent oil companies and governments) to understand the future market environment and competitive landscape, set an appropriate strategic direction and implement strategic initiatives. He worked more than eight years with IBM Consulting (formerly PriceWaterhouseCoopers, PwC Consulting) as an associate partner in the strategic change practice focused on the energy sector while residing in Houston, Singapore, Beijing and London.